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When you own a business, your situation is like climbing to the top of a mountain. You’ve surmounted untold obstacles and reached a pinnacle of achievement. But if something goes wrong, you can fall a long, long way down.

If you get injured or sick and you’re unable to practice your profession and run your business, you need to worry not only about the loss of income for your household but also the inability to pay the ongoing expenses of your business. Many professionals who own a practice purchase private disability insurance to provide income for support in this situation. But disability insurance alone may not be enough. It is important to ensure you have the resources to cover your business’s overhead expenses, so the enterprise can continue to function until you are able to return.

You may want to invest in a business overhead expense insurance policy to supplement your disability insurance policy. Or you may want to develop another plan to provide resources in an emergency situation. It is important to understand the differences between business overhead expense insurance and disability insurance to ensure your livelihood is fully protected.

As attorneys, we do not sell either type of insurance, so we have nothing to gain if you purchase additional coverage. Our job is to ensure that your insurer honors its obligations when a disability prevents you from working. If you contact us directly, we can help you understand your current policy coverage and review options to supplement it, if necessary. Here we provide some general information about business overhead insurance and how it relates to traditional disability insurance.

The Basics About Business Overhead Expense Insurance

Business overhead expense insurance is designed for businesses that rely on the business owner’s involvement in day-to-day operations. This includes many professionals such as physicians, dentists, psychologists, accountants, and lawyers. When these individuals are unable to practice their profession to generate income, the business that relies on them can be forced to close unless they have significant reserves that can be liquidated and set aside to draw on. This type of disability coverage can prevent that from happening.

Coverage provided under business overhead expense insurance policies may include the cost of:

• Rent or mortgage payments
• Employee salaries and payroll taxes
• Utilities
• Property taxes
• Maintenance of facilities and equipment
• Accounting expenses
• Insurance premiums and other regular operating expenses

Having business overhead coverage in place allows professionals to focus on their recovery without worrying about what will happen to staff and facilities while they’re out. Although business overhead insurance provides resources when the principal member of the business is dealing with a disability, it is not a substitute for private disability insurance. It does not provide any benefits to cover the business owner’s personal needs, such as medical costs, food, and housing.

How Business Overhead Expense Insurance Works

Business overhead coverage cannot be added to a personal disability policy, although it might make sense to combine these types of insurance. Instead, business owners must purchase a separate business overhead expense policy in addition to their individual disability insurance policy.

If the business owner suffers from an illness or injury that meets the criteria established in the policy, then the reimbursement process can begin. Most policies have an elimination period, also known as a waiting period. The benefits are not provided from the first day of disability but from the time the elimination period ends.

Benefits will be provided only for overhead expenses that are eligible under the policy’s terms, so it is essential to understand those terms before the need arises. It will be necessary to submit copies of expense details for reimbursement.

The policy will establish limits. There may be a monthly cap on reimbursed expenses or a total benefit cap. There will also be a limit on the duration of the benefit period. Most policies will only reimburse for overhead expenses for 12-24 months. It is important to build business plans around these limitations. Depending on the situation, it may also be wise to purchase additional coverage, such as policies to cover bank-loan payments or to fund a disability buy-sell agreement.

Similarities and Differences Between Business Overhead Insurance and Disability Insurance

Because business overhead insurance is designed to protect the business rather than the owner, it is generally tax-deductible. By contrast, premiums paid for disability insurance are usually not deductible from either personal income taxes, although they could potentially be deductible for the business, depending on the business structure.

Another difference between these types of policies is the way benefits are paid. With disability insurance, benefits are generally tied to income, or they may be a set amount. But benefits paid through a business overhead expense policy are based on expenses rather than income.

Because these types of policies are both designed to provide support when a business owner is suffering from a disability that prevents them from working, there are many attributes that these policies have in common. First, it is important for policyholders to understand the terms, particularly the exclusions and limitations. Certain conditions may be excluded from coverage, or the benefits provided when these conditions are present may be extraordinarily limited.

But many times, even when a policyholder’s condition clearly qualifies them for benefits, the insurance company denies the claim. This could be a bad-faith action on the part of the insurer, or it could stem from the fact that the insurance company needs additional information and is simply not volunteering to explain the problem. Insurance companies operate to make money, and their profit margins are higher when they deny claims rather than pay them.

A Philadelphia insurance bad faith attorney can assess whether a denial was a violation of the insurer’s policy obligations and work to negotiate a solution. If negotiation fails, it is often beneficial to pursue remedies through litigation, so it is a good idea to work with a legal team with a successful track record of resolving disputes in court.

Determining Whether You Need Two Policies

It can be challenging to assess the type of insurance coverage you need to protect yourself in case a disability prevents you from working. While many professionals would benefit from having both business overhead expense insurance and private disability insurance, the dual coverage may not be necessary in all situations. For instance, when a professional operates with a team that shares in the responsibility for generating income, the practice is not entirely dependent on a single professional, and business overhead coverage might not be necessary or even available. That professional might only need individual disability insurance to assist with personal expenses.

On the other side of the coin, a business owner who has other income streams to rely on may want business overhead expense coverage to protect the business, but does not need the benefits provided by disability insurance to meet personal expenses.

Seltzer & Associates Assists with All Aspects of Disability Insurance

At Seltzer & Associates, we focus our practice on disability insurance, so we understand the issues with a degree of intensity that few firms can match. We can assist with a wide variety of issues, from evaluating coverage and explaining policy terms to filing claims, maintaining benefits, and appealing denials. Our team has decades of experience in litigation, but we work effectively to resolve problems out of court whenever possible.

To find out more about the assistance we can provide, schedule a free consultation with us by calling 888-699-4222 or contacting us online.